Keynes warned the world against using economic sanctions. His alternative is worth considering | Nicholas Müller
Jhe United States has come to rely more than ever on economic sanctions. After its withdrawal from Kabul in August, Washington maintained economic pressure on the Taliban. The Treasury’s freezing of $9.5 billion in Afghan state assets has left the country impoverished famine This winter. Two weeks ago, US officials warned Iran, already under severe economic pressure, that it will face “snapback” sanctions unless Tehran curtails its nuclear ambitions.
Most significant of all is the threat of sanctions the Biden administration issued against Russia last month. Faced with a significant Russian military reinforcement on the borders of Ukraine, Joe Biden announcement on December 8 that Vladimir Putin will face “serious consequences, economic consequences the likes of which he has never seen or seen before” if he degenerates into open conflict.
In all three cases, proponents of economic pressure say the sanctions will deter aggressive actions and compel better behavior. But the reality is that the deterrent and binding effect of US sanctions has dropped dramatically amid widespread overuse.
Iran has been under U.S. sanctions on and off since 1979. It has such a long track record of resisting outside pressure that new coercive measures are unlikely to work. Putin’s Russia has suitable for Western sanctions imposed since 2014 by building large financial reserves, promoting agricultural self-sufficiency and designing alternative payment systems.
Western supporters of sanctions now face a stalemate for which they are partly responsible. Instead of calming tensions, their implacable and impulsive recourse to the economic weapon has aggravated the very conflicts it is supposed to resolve.
Sanctions were created as an antidote to war. Today, they have become an alternative way of waging war, perpetuating conflicts but not defusing them. To understand how the policy of economic pressure arrived at this impasse, it is useful to go back to its historical origins.
A century ago, in the aftermath of the First World War, sanctions were created as a mechanism to prevent future conflicts. During the war, the allies imposed a devastating blockade on their enemies, Germany and Austria-Hungary. This kind of economic war against civilians was not a new phenomenon. It dates back to antiquity and played an important role throughout the 19th century, from the Napoleonic Wars to the American Civil War.
What was unprecedented in 1918-1919 was that the tool of the blockade was retained by the victors after the end of the war. Led by US President Woodrow Wilson, the Allied leaders endowed a new international organization with what they described as “the economic weapon”: the League of Nations would be able to impose a severe economic blockade against unruly states that disturbed the international order. Liberal internationalism’s penchant for economic sanctions, still so strong today, grew out of a desire to avoid a repeat of the First World War.
We remember the League of Nations as a failure because it failed to stop a second world war. But in its early days, its sanctions seemed to work to preserve the peace. Twice in the 1920s blockade threats were effective in preventing border skirmishes in the Balkans from escalating into a wider war.
But after the economic shock of the Great Depression, this sanctionist strategy backfired. The global crisis has emboldened nationalist movements that have preached self-reliance and militarism and attacked liberalism, international cooperation and peace.
By trying to stop the aggressors with threats of sanctions, League governments have only accelerated this trend. Sanctions have made economic interdependence appear more dangerous than protectionism. Ultimately, Nazi Germany and Imperial Japan embarked on campaigns of conquest to secure vital resources like oil, grain, and metals. In pursuit of their desire to become impervious to Anglo-American pressure, these fascist regimes provoked another world war.
Today, we are again faced with a fragile international environment. In recent years, the effects of nationalism, trade disputes, natural disasters and the coronavirus pandemic have weakened globalization. Extending the use of sanctions risks further destabilizing the global economy. Last year, sanctions against Chinese telecom giant Huawei worsen the shortage of chips. Sanctions on oil exports from Venezuela pushed Maduro’s government into a desperate race for money by expansion of dirty mining for gold and diamonds, poisoning locals and destroying biodiversity in the Amazon. Any major sanctions against Russia would, if imposed, result in turmoil in the oil and gas markets, which would particularly harm European economies.
However, there are some promising older ideas that can help stave off such a future. One comes from British economist John Maynard Keynes.
In an unpublished 1924 letter to the League of Nations which I found in its archives in Geneva, Keynes urged sanctions proponents to focus on providing “positive assistance to the aggrieved party in relation to retaliation against the aggressor”. He proposes to organize logistical and financial aid to countries in distress. This, he said, is a better tool for stabilization than punitive economic sanctions, which “would always run the risk of not being effective and not easily distinguishable from acts of war”.
Interwar liberals were too slow to grasp the importance of Keynes’s proposals. In 1935, the League of Nations imposed sanctions on Italy to stop Mussolini’s invasion of Ethiopia. This measure ultimately failed to save the African nation from defeat and occupation by fascism. While world leaders focused on whether the League’s sanctions were tough enough, they ignored Ethiopia’s pleas for financial help.
The unintended role that sanctions played during the collapse of globalization in the interwar period holds two lessons for our current moment. First, the threat and sustained use of economic pressure becomes less effective over time. At some point, the imposition of additional sanctions hardens rather than reduces the resistance of the countries they target. Biden’s threat of sanctions against Putin is one example. The Kremlin has made it clear that it is ready to qualify this bluff and sever diplomatic relations in response. Sanctions therefore risk bringing Russia and the West closer to war.
Second, the potential for such a vicious spiral between liberal sanctions and nationalist aggression can be contained with constructive aid policies. In its national response to the pandemic, the US government has rediscovered the Keynesian lesson that government spending is an effective way to stave off economic downturns. But Western leaders have yet to appreciate Keynes’ lost insight into the superiority of supply over deprivation as a tool for stabilizing international conflict.
After trying and failing to effectively wield the stick of sanctions, the United States should focus on crafting an attractive carrot in the form of long-term economic aid. This should be extended to battered allies like Ukraine, a country that receives lots of military aid but virtually no significant structural investment – indeed, its GDP per capita is still a fifth lower than it used to be. thirty years ago. Economic aid should also be given to former rivals such as the new Taliban government in Afghanistan. This is imperative not only to end the ongoing humanitarian catastrophe, but also because a failure to stabilize the Afghan economy will worsen refugee flows and foster Islamic extremist groups – the very threat that two decades of intervention American were supposed to eliminate.
Making the prospect of sanctions relief credible will also help manage relations with adversaries like Iran and Russia. Their fortress economies are unlikely to budge under further sanctions. Yet this intransigence does not mean that sanctions relief is necessarily ineffective. On the contrary: years of restrictions have lowered the economic growth trajectories of Iran and Russia, eroded their currencies and caused inflationary pressures. The sanctions waivers therefore offer real opportunities for Tehran and Moscow. But because sanctions are increasingly deployed as a substitute for war rather than a route to diplomacy, we hardly discuss the long-term concessions that might be unlocked through sanctions relief.
In the 21st century, promoting economic recovery at home while imposing deprivation abroad is ultimately a self-defeating way to seek global stability. It is also a narrow approach to the defense of liberal values. All countries face a combination of interconnected problems: supply chain problems, unequal income and vaccine distribution, and rampant climate change. In such a world, the positive instrument of aid is a more effective tool than the negative weapon of sanctions.